Ruminations of an Israeli-American Venture Capitalist Looking for the Best and Brightest Entrepreneurs

Friday, April 16, 2010

The App Developer's Children Have No iPads

Israel is lauded for its impressive high tech achievements, but this is primarily for the development of technology, not its application or deployment. Actually, outside of the defense/security realm, Israel is often a laggard when it comes to the adoption of new technologies(I am excluding the Internet). Instead of the Israeli domestic market serving asa a laboratory for its start-ups and entrepreneurs, it has become a clear hindrance to their success. Nowhere is this situation more poignant than in the telecom and clean tech sectors, where Israeli companies are renowned for their innovation and trailblazing development, but where one must travel thousands of kilometers from Israel to witness their actual application. In fact, I believe there is a widening gap between what pioneering Israeli companies are developing for export today, and the point far in the future when Israel will adopt those home grown technologies.

While it is the role of private corporations and entrepreneurs to adopt and deploy new technologies, I place much of the blame with those government and regulatory bodies tasked with ensuring a competitive and progressive market. It’s not enough to belatedly deregulate and open markets to competition, as Israel has done in telecom. Israel must take the lead and guide its local companies so that they are partners in the development and deployment of technology, and not orphaned to export. This is most critical considering that Israeli technology companies are increasingly competing with companies in Korea, Japan and China, where government support and sponsorship borders on protectionism.

Everyone knows that Orckit sold DSL equipment long before Israeli consumers could enjoy broadband. Or that Israel is the home of the only publicly traded WiMAX company in the world, but has no intention of ever licensing spectrum for WiMAX services. It has been the same situation for Israeli companies pioneering fiber-to-the-home, WiFi, home networking, IPTV, High Definition broadcast(finally!), and mobile TV. And for every successful start-up that overcomes the apathetic or hamstrung local market, there are many more Israeli start-ups that were simply outdone by foreign competitors with inferior products, but who had benefactors in the form of domestic customers. Sweden, Korea, India and China come to mind when I think of countries where domestic start-ups work closely with domestic customers to build the product and start deployment. I am not calling for protectionist policies that favor local companies(although some modest patronage at the early stages wouldn’t hurt), but rather for a local market that can embrace advanced technology early on in tandem with start-ups to ensure that Israel as a country is at the forefront of technology.

I am hopeful that Israel will eventually adopt most of the technology it produces and allow its citizens to enjoys the fruits of its engineering feats, but at the same time I am fearful how foot dragging and bureaucracy can harm our industry. The recent headline about Israeli Ministry of Communications banning iPads is a sign of how myopic and obtuse the government can be. It’s easy to forget that WiFi and Bluetooth were banned outright in Israel until late 2003, despite the fact that Intel Israel was already shipping the Centrino processors or that Israeli start-ups Envara and Butterfly were pioneering these standards three years prior to their legalization.

Clean tech is actually a lot worse, for reasons that have no logical explanation. The country is still wholly dependent upon polluting fossil fuels, all of which are imported. Israel sells solar panel products, and now even solar panel companies, but cannot manage to get around to actually using the technology on a massive scale despite the abundance of sunlight. Despite claims to the contrary, Israel will never be a true clean tech power if it cannot rely on its domestic market for trials and deployment. Better Place may prove the exception, but if they succeed in Israel it will not be solely because of its unique approach or technology, but also because of its political and economic clout.

We often take the strong Israeli high tech sector for granted, but it does not excel in a vacuum. Just like we need a strong education system to produce the next generation of entrepreneurs, we need more competition and more government leadership to make Israel a true laboratory for innovation.In short, I want an Israeli government that is as visionary and ambitious in the usage of technology as the Israeli entrepreneurs that develop it.

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The thoughts and opinions expressed herein belong to the author and do not necessarily reflect those of Bessemer Venture Partners or any of its affiliates (“Bessemer”). The material here is written on the author’s own time for [his/her] own reasons and Bessemer has not reviewed or approved the information herein. Any discussion of topics related to Bessemer or its investment activities should not be construed as an official comment of Bessemer.